Financial Planning

4 keys to living longer and better in retirement

Steve Williams is a Senior Vice President and Head of Financial Planning,
U.S. at BMO Private Bank. He
oversees the strategic development and delivery of customized financial planning
services to high net worth individuals and families throughout the United
States. Steve joined the BMO in 1998 and has over 17 years of experience in the
financial services industry.He is a Certified Financial Planner professional,
Certified Investment Management Analyst and also a Certified Retirement
Counselor.

Today, according to the National Institute on Aging, there are over 40 million people in the U.S. aged 65 or older, accounting for about 13% of the total population. In 1900, there were just 3.1 million 65 or older Americans, or about 4.1% of the population.

The vast majority of baby boomers — those born between 1946 and 1964 — are on a quest to improve their odds of living longer than previous generations. They not only want to live longer, they want to live healthily, happily and more financially secure than ever before.

The four keys to longevity are body, mind, social and financial

Normal aging involves a continuing physiological transformation. As your body and mind evolve and adapt, it's helpful to re-evaluate both your physical and your mental status, and to determine what

changes in your diet, exercise regime and general lifestyle are required to promote 'healthy' longevity.

Although it's never too late to make positive changes, keeping clear goals in sight is easier when good habits are formed and incorporated over a lifetime, rather than adopted as an afterthought. It's critical that you devise a strategy that will help you remain vigilant about all aspects of your health, well-being, personal life and financial assets. By consciously nurturing these four components, you can unlock your potential to achieve a long and rewarding life.

Key 1: The body

Good health is one of the basic elements required to achieve a long life; without it, everything else is diminished. Now is the time to initiate the changes necessary to maximize your current and future health status.

Research conducted by Dr. Dean Ornish and his team at the University of California, San Francisco concluded that following a program of "healthy eating, exercise and stress reduction cannot only reverse some diseases — it may actually slow down the aging process at the genetic level."

In fact, longevity odds are greatly influenced by your personal lifestyle choices. Other aspects of good health should include:

Eliminating or reducing the amount of unhealthy fats, processed sugars and preservatives in your diet.

Key 2: The mind

Living your best life depends on a healthy brain. A recent article in Psychology Today explores the best ways to improve your brain power for life. This article reveals that functioning to our fullest capacity is directly linked to the health of our brains. The article suggests that you incorporate these four fundamental lifestyle changes to boost your brain power.

Aerobic exercise: People who exercise moderately to vigorously just once a week are 30% more likely to maintain their cognitive function than those who don't exercise at all.

Don't smoke: Nonsmokers are nearly twice as likely to stay sharp in old age as those who smoke.

Maintain social networks: People who work, volunteer and maintain close-knit human bonds are 24% more likely to preserve cognitive function in late life.

The brain, just like the muscles of the body, requires regular exercise to keep the mind sharp. Mature adults are rising to the challenge by adapting to the technology wave and incorporating activities that challenge the thinking process, including surfing the Web, online gaming, and using an electronic reader to catch up on the latest book. There is no doubt that all of these activities sharpen your cognitive skills — the key to optimal mental health.

Key 3: Social

The popularity of personal bucket lists has ignited a passion in seniors to take up new hobbies, write their life stories, or develop new careers. Senior wanderlust knows no bounds when it comes to fulfilling dreams after raising a family and retiring from a dedicated career. The key is to stay engaged with other people.

Researchers at the Institute of Economic Affairs in the U.K. recently identified a range of substantially negative effects on health after retirement. Their study found retirement to be associated with a significant increase in clinical depression and a decline in self-assessed health. These effects were shown to grow as the number of years people spent in retirement increased.5

The encouraging link between continuing to work and longevity is exemplified in the Chianti region of Italy, located in Tuscany between the cities of Florence and Siena. In this famous wine region, the family-owned vineyards are often passed on from generation to generation, and average lifespans are significantly longer. While the elders may leave the more taxing jobs to the youngsters, they never fully retire. The older members of the family continue to walk the rows of vines to make sure the grapes are in good condition and participate in tastings to ensure the quality of the wine, and they remain involved in important business decisions. Many locals claim it's their continuing daily involvement that is responsible for their exceptionally long and healthy lives.

Key 4: Financial

Having sound finances is the underlying pillar to be able to travel or stay engaged socially through activities. The major concern for retirees right now is to know whether they have enough saved to cover future health-care costs. The good news is that there are proactive measures that can be taken to help minimize spiraling medical expenditures. Long-term care insurance is one such measure that may be part of the strategy to help curtail these expenses in the future. It may seem like peace of mind at a price, but not when you consider a 2012 Genworth Cost of Care Survey citing a 70% chance of a retiree needing some type of long- term or in-home care as they age. The costs may vary a great deal by state; such that annual nursing-home care costs can range from $36,000 for a shared room to $72,000 for a single room.

If you're still in the active workforce and meet qualifying conditions, you may opt to open a health savings account (HSA) to help meet your future health-care expenses. These plans provide the opportunity to deposit funds and grow them on a tax-favored basis. However, unless you start early, the annual contribution limits of approximately $3,300 for a single individual or about $6,550 for a family reduces the account's overall effectiveness in covering the potentially high health-care costs in retirement.

The state of health care and its associated costs are constantly evolving in the U.S. Here are some steps you can take to keep pace with insurance industry and Medicare changes.

Review your plan annually to make sure you have the best coverage and health care available and that you aren't paying for features that you don't need.

Be aware that drug costs change drastically between plans. Switching coverage may also mean a change in care providers. If you're committed to your personal physician or other specialists, make sure your insurance provider agrees before making a switch.

The EBRI found that Medicare generally covers only about 60% of the cost of health-care services (not including long-term care) for Medicare beneficiaries aged 65 and older, while out-of-pocket spending accounts for 13% of health-care expenditures (private insurance is an additional 14%). With that in mind, the EBRI estimates that a 65-year-old couple, both with median drug expenses, would need approximately $283,000 in today's dollars to have a high probability of covering 25 years of future health-care expenses (excluding long-term care) in retirement.

Fail to plan — plan to fail

One of the easiest ways to increase confidence in your financial security is to work with a financial adviser to develop a retirement plan. Yet, those who have taken this important step are still in the minority.

The need for financial security becomes more apparent as we age. When regular employment income is no longer part of the equation, the wealth accumulated during working years may help to fill the gaps. Uncertainty about the future of Medicare and Social Security has forced us to become more resourceful and to seek out other long-term solutions.

An important first step is to talk with a financial adviser who will work with you to develop a financial plan that, among other things, looks at your retirement income needs and ways to meet these financial goals.

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